By KELLY GREENE
Many U.S. companies that during the recession cut 401(k) matching contributions—one of the most valuable employee benefits—are beginning to restore them.
In an effort to retain top employees, many U.S. companies that cut back on one of the most valuable employee benefits during the recession, the 401(k) matching contribution, are beginning to restore it. Kelly Greene has details.
But a number of firms are contributing less than before, are linking contributions to profits or are making workers save more on their own before kicking in, say benefits consultants.
United Parcel Service reinstated its 401(k) match in January after having suspended it in 2009. But the delivery giant changed the way it doles out the benefit: Instead of matching what employees defer up to 3% of eligible pay, UPS will now match half of what they defer, up to 5%. Its top contribution is now 2.5% of pay, compared with 3% in 2008.
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"The match did change slightly, to encourage employees to defer a larger percentage of their own pay," said Norman Black, a UPS spokesman.
Some UPS employees were grateful to be getting anything. "I was absolutely delighted when it was reinstated," said Peggy Gardner, UPS's director of customer communications. "I know it was very important to the employees in my group."
Employers of all sizes are moving to "a smaller, discretionary match" to save money, said Jeanne Thompson, a vice president at Fidelity Investments, which is the custodian for 11 million employee accounts.
MGM Resorts International Inc. suspended its 401(k) match for 2009 and 2010. In February, the casino operator reinstated part of it, but with less-generous terms. Now, employees are eligible to receive 50% of what they contribute up to the first 6% of eligible pay, with a maximum match of $500 for the year, said an MGM spokeswoman.
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Before the suspension, the company matched dollar for dollar up to 6% of eligible compensation, says the spokeswoman. MGM hasn't determined how long the $500 cap will remain in place, she says.
The 401(k) is a tax-deferred account that allows workers to save for retirement, with companies often matching workers' savings up to a certain level. During the recent recession, almost one in five U.S. companies with at least 1,000 workers suspended matching contributions, according to consulting firm Towers Watson.
With traditional pension plans being phased out and concerns mounting over the long-term viability of Social Security, Americans increasingly view 401(k) accounts as crucial. A BlackRock Inc. survey last year found that 401(k) plan participants considered the employer match more of an influence on their savings rate than their household budget was.
Companies are keenly aware of the importance of 401(k) plans. A survey of 600 human-resource professionals by the Society for Human Resource Management, set to be released June 26, has found a significant increase in the number of employers that offer 401(k)s—93% this year, up from 83% in 2008.
Meanwhile, according to a June 8 survey by Duke University and CFO Magazine of about 500 chief financial officers, 43% of businesses that had slashed their 401(k) matches expect to restore them in the next 12 months, or already have done so, compared with 12% at the same time last year.
For example, Columbus, Ohio-based Pinnacle Data Systems Inc., which designs, builds and services high-end computer and telecom gear, reinstated its 401(k) match last year after dropping it in 2009.
"Our people are valuable resources to us," says Nick Tomashot, chief financial officer. "Anything we can do to encourage retention is something we want to do."
Eclipse Inc., a Rockford, Ill. , industrial-heating equipment manufacturer with 700 employees, suspended its match in early 2009 and restored it, at the full prior level, in April 2010. The big reason: It worried about losing highly skilled welders and machinists to other nearby aviation-industry suppliers. "There is quite a bit of competition for a skilled work force," said Gregory Bubp, Eclipse's chief financial officer.
FedEx Corp. suspended its 401(k) match in February 2009. Later that year, it said it would reinstate half of the match, and it restored the rest on Jan. 1, 2011. "We restored it to the original," a spokesman said.
Yet many companies, facing a slowly improving job market, seek to balance the need to retain highly skilled workers with the need to limit costs.
"A few have made [their matches] discretionary," says Robyn Credico, a senior consultant at Towers Watson. "That's so you don't get into trouble if the economy falls apart again."
Shawn Fegley, a research analyst with the Society for Human Resource Management in Alexandria, Va., expects more employers to consider basing their 401(k) matches on profitability in coming years, in part to avoid cutting benefits in the future.
"Employers don't want to make commitments and then remove them," he said. "If they have a terrible 2011 and have to take away matching contributions again, it doesn't send a good message to the work force."
Some companies still don't feel financially able to restore the match—and are losing employees as a result. Woodgrain Millwork Inc., a Fruitland, Idaho, maker of windows, doors and moldings, has reversed a 5% wage reduction to salaried employees but hasn't yet restored its former 401(k) match of 50% of up to 6% of pay.
"It's a regular conversation topic both within ownership and among employees," said Chief Financial Officer Greg Easton. "Our biggest challenges are in the accounting and information-technology pieces, because those skills are transferrable. There are a few select areas where we've lost a couple people as a result."
Getting the calculation right has been challenging for some companies. Rudolph Libbe Cos., a Walbridge, Ohio, building and maintenance contractor that has 360 workers covered by a 401(k) plan, suspended its match in 2009 amid three rounds of staff furloughs and buyouts.
After landing three big projects last year, its management is debating whether and how to restore the match, said Chief Financial Officer Robert Pruger. The company is considering enrolling workers automatically, and is exploring the possibly of linking any match to profits to cut back on "absolute costs we know we'd have to pay," he said.
—Dana Mattioli, Joann S. Lublin and Anne Tergesen contributed to this article.
Write to Kelly Greene at kelly.greene@wsj.com
